Cashflow outlook worsening, new LMS quarterly survey shows
Cashflow problems are worsening for law firms, according to results from the Law Society’s Law Management Section (LMS) financial benchmarking quarterly.
The survey, the first results of which are to be published tomorrow, found that 40% of firms were experiencing more cashflow pressures than in the previous quarter.
Firms' responses to increased pressures varied considerably. One in eight of the firms surveyed had introduced new capital to ease cashflow and a similar percentage have restricted partner drawings. A third of practices reported operating within 25% of their overdraft limit, while one in six were operating within 10% of their overdraft limit on a regular basis.
Of the 51 participating firms, one-third of practices said they were considering a merger with another practice. While fee income was down compared to the previous quarter, it was slightly up on the same quarter last year.
Law Society President Lucy Scott-Moncrieff said: ‘In a climate where access to funds from the banks or elsewhere is limited, legal practices are going to have to look at other ways to make savings and release cash.
‘The full survey reveals what areas of the business firms have made changes to in order to ensure cashflow. The underlying message is that effective and business management is essential, especially at a time like this. That might seem obvious, but achieving it can be anything but; the Law Management Section helps firms identify the best way to manage those costs.’
This was the first quarterly LMS Financial Benchmarking Survey, and from this year is open to all legal practices to participate in. Participating firms receive the full report. The annual survey, which has been running for 12 years, has historically been open to LMS members only.
The report, produced in association with accountants Hazelwoods LLP, is sponsored by Lloyds TSB.
Comments
Law Society President Lucy
Law Society President Lucy Scott-Moncrieff said: ‘In a climate where access to funds from the banks or elsewhere is limited, legal practices are going to have to look at other ways to make savings and release cash.' So says Lucy. Well you can cut qualified staff of solicitor grade or pay them much less so they are better off changing career. You can also call on Partners to put in capital. This can easily be done by borrowing on your family home and getting into further debt, safe in the knowledge you are propping up a business model that is highly risky and probably no longer fit for purpose. Non partners need not worry as they can simply be made redundant.
You could always increase your hourly rate and bill like a ruthless legal machine but then you may find you lose clients or better still get some complaints, which can then be published.
Making Savings and Releasing Cash
You could do all of those things - but should not need to if you set out to manage your lockup professionally and reduce the cash required to run your firm.
Of course you would need your staff and partners to operate efficiently, bill on time and ask their clients for the money. In other words be all round professionals.
Too often the refrain is "we can't ask him to pay - he is a good client".
Firms need to stop acting like a bank and act like a business.
For most firms, managing the lockup will solve the cash flow problem - but if that does not do all you need, then your business model needs serious attention.
Open markets are unforgiving and it is not going to get easier
For more on this and related issues - log on to my LMS webinar in October - details on the LMS website
Barry, you sound like you
Barry, you sound like you know what you are talking about. Please get in touch. roger@allansons.com. Ta.
Practising Certificate fees and cash flow
So, what do the SRA do about the "worsening" (didnt know there was such a word!) cash flow problems??? Teey put up the Practising Certificate fees.....very helpful...NOT! Soon there wont be ANY Practising Certificates that need issuing because by the efforts between the PII providers, the Banks and panels, the LSC, the Law Society and the SRA, no Solicitors will be able to afford to practice!!
PC fees and cash flow
I totally agree with Sandra Lanaway - how on earth can the hike in practising certificate fees be justified against the background of economic woe which Ms Moncrieff speaks of? I am a sole practitioner with costs cut to the bone, and get no breaks for it.
Most of the profession still hasn't woken up to the future
Let's face it, this is of no surprise to those solicitors who have, in the last few years actually given any serious thought to the future of the legal profession. We have an economy stuck in recession, a stalled housing market and much of the economic pain still to come. Goodness knows how bad things will get for the British economy if the Euro crisis gets worse and we have an unplanned Greek exit. Add that to the fact that many solicitors still treat their firms more like a hobby than a business and the conclusion is that many, possibly thousands of law firms will either fold or merge. I suspect it's only very low interest rates that are keeping the zombie or walking dead firms afloat. None of this is news – but most of the profession still hasn't woken up to the future.
Zombies
'ahhh err urgh arghh BRAINS !'
Look out zombie solicitors are coming they are everywhere!! Dont let them bite!!!
practising certs
Can someone tell me why , exactly, have the pc fees increased? Is it because we are getting a better service? What service are we getting, anyhow? What does the Law Society do for us? What have they done about legal aid, ABS,PII providers,etc, etc?Can't the Law Society help us, by giving us, rather than selling us, a few cpd courses, and helping us with the recent nonsense about 'outcome focussed regulation' rather than charging us through the nose for their pathetic offerings? Rather than giving themselves jobs and wasting our time having to comply with this, that, and the other regulation,why can't they they focus on giving us a good outcome for our fee? Has anyone seen the waste of time that is the 'diversity questionnaire'? how many wages did we pay to get that developed and sent out? Can't the Law Society do something to stop this continued waste of our time and effort?
Re-Practicising certs
The problem is simple. The Law Society is a monopoly. It serves it's own best interests because it can. i imagine it is just like the Legal Services Commission, another monopoly, with an ethos that is to hinder rather than help solicitors. The Law Society does not run it's own affairs like a business because there is no other competing business, therefore, it creates ridiculous schemes to justify and pacify its own existence.
Prac Certs
The reason the fees are on the up is to pay for the SRA debacle with the practising certificate renewals last year - which cost us £10M, that is, the SRA lost £10M. Would you give Antony Townsend a job? The compensation fund is also going up per solicitor plus by around £600 per firm on top.
Also why do we provide a pay package of £460,000 each year for our CEO Mr Hudson at the Law Society? Is there nobody able to do so at a sensible figure.
The Law Society/SRA gravy train rumbles on.....
Dissolution of law firms and clients' money
What measures have the Law Society put in place to ensure that stakeholders'/Clients'
money will not be affected by dissolution of the law firm ?
Effective management of lockup
I agree with most of comments made. Cash is king even for lawyers. There are more than twelve billing days during the year.Effective billing and cash management is critical. The partnersin the practice have to mange effectively the business as well as practicing the law. They need to get buy in from the team both on more regular billing and collection of debts.
They also need to look at their business structure since this can be used to release cash and also assist future cash flow through minimising tax and the deferal of payments
Cash flow and lock up
We have an excellent business model, face challenges head on, think ahead, plan ahead. Contributors like Barry are obviously not trying to run a practice carrying out primarily publicly funded work. There is an antiquated billing system for publicly funded work, we face daily the determination of the LSC to reject and reduce everything possible (usually incorrectly), when they do approve a claim it takes them weeks and weeks to pay it. We also have the High Cost Case Unit to contend with where it takes around 93 working days from submission to payment, if we are lucky, and even longer if the case is one where it has concluded before a caseplan can be submitted and therefore we have to submit Claims in lieu of a caseplan - these cases are not even looked at for four months (they are currently dealing with those submitted in April). The Unit often take so long to consider a caseplan the case has concluded before they do so, so we cannot put in an interim staged bill as they will not entertain that if the case has concluded, despite the fact that they have sat on the file for so long. We cannot get payments on account on those cases until a caseplan is approved. Yes I agree we shouldn't have to act as a Bank for the LSC, our overdraft funds the government on which we pay commercial rates of interest. They simply don't care.
Cashflow
Problems with cashflow are not solved by investing further capital into a firm. The problem lies in the need to collect costs efficiently. When most clients consult a lawyer they have a problem. At the initial stage they are receptive to paying a substantial sum on account of costs. If the costing plan is carefully explained and agreed as fair you can start cases on the right footing. It then takes discipline to cost the file without fail on a monthly basis requiring early settlement. In this way you keep ahead of the game in terms of costs and consequently cashflow. At the conclusion of the case you should aim to send a cheque to the client with the final letter. There is no chasing of costs, and the client is a friend when he/she receives the cheque. Complaints become very rare. Unfortunately so many solicitors decline to accept this discipline, and prefer to focus on getting the work done. This is a recipe for problems.
Business is tough out there....
too tough for South Devon firm Eastleys recently. Pre-pack, creditors alledgedly offered just 2p in the £
Be interesting to see what the SRA has to say.
Cashflow by John Twitchen
Does this sound advice apply to conveyancing transactions as well? Enlighten us as to how you can get any more than search fees and other disbursements. I suppose I could ask for half a percent of the sale/purchase price on account. I don't think so! With so many transactions going abortive, if you try rendering a bill for abortive work, I can guarantee you won't see that client for dust.
Platitudes, platitudes
Oh, Lucy - I am sure you are tougher than your double-barrel implies but when, oh when will the Society elect itself a President with balls (no sexist innuendo intended), who will actually stand up and be counted, campaign effectively for those it represents!!!
Martin Mears was the last
Martin Mears was the last good President who stood up for the profession-but the Establishment didn't like him so-no more elections!
HARD WORK
Frankly I get a little tired of all this whinging and moaning. Quite simply the Law has been good to me because I have been good at the Law. We have a well run practice in the home counties that brings in a good living for the equity partners. Through hard work and keen systems I have a detached 5 bedroom house, Land Rover and enough spare to treat my wife to a cocktail dress and a nice piece of jewellery now and then. This new generation of solicitors will have to put their face to the coal face and bring in the fees to earn their place at the top table. In short the cream will always rise to the top and in my firm I am the cream.
Brilliant!
Brilliant!
LMS Quarterly Survey
Taking note of all comments I would like to add some colour from the position of a lender into the UK legal sector, appreciating I am not a practitioner however have operated within the financial services sector specialising within the legal sector for over 8 years – before the comments flood inwards. One of the opening comments from Barry Wilkinson around practices approach to their operation as a business rather than a bank is highly valid and I must agree here.
Keeping up to date, clear, concise & accurate financial & reporting information is critical to any firm - where else is the performance, business objectives and are KPI's tracked which are implemented by firms to drive greater efficiency, productivity and all round practice improvements. Everyone knows reducing debtor days is vital but there is much more to do than simply know this and chase harder, this topic has been exhausted for the last 4 years but remains highly valid and relevant and key to success.
Today it's evident more & more firms are beginning to understand the need to make internal improvements on financial & performance reporting tools, implementing stringent and achievable KPI's with timescales for depts. Budgeting realistically & accurately given the constraints of their market and reviewing MONTHLY with stakeholders/partners on the performance to make changes where NOW clearly identified rather than for example half yearly or even annually in some cases when the issues are simply far late to address – a commercial approach to business.
Lenders requirements whether the bank or independent financiers, will always seek to accommodate firms with clear visibility & understanding of their own financial position and that demonstrate the metrics for success are in place - it’s not solely a case of profitable & liquidity of the firm an increased understanding of a practices financial objectives and management is required. Which draws me to the first comment highlighting the quote ‘in a climate where access to funds from the banks or elsewhere is limited, legal practices are going to have to look at other ways to make savings and release cash.'
Whilst a part of this I accept, being it is evident bank lending has tightened and the subsequent view on risk from banks vs. 2008 has significantly changed, this is evidenced however more noticeable has been the banking and financial sectors squeeze on firms around reporting information to support lending understandably given some of the highly reported practice failures. Specialist Independent financiers seem to be bucking the trend I personally believe with lending into the sector improving as the return on capital and risk is potentially viewed some what differently to banks or as a consequence to increased overdraft usage and banking pressures, however the importance of understanding the nature of the sector and its constraints enables independents to tailor financial solutions specifically for legal firms to assist in cash flow and budgeting efficiency similar to Tax/Vat/PII/Pcert funding.
Practices always need to review efficiencies but to do this as several have mentioned relies on running the firm as a business and having a sound business model which is clearly identifiable and track able where you can asses the situation and react accordingly to needed changes.
Yes cash flow positions are being squeezed within many law firms which are unchallenged however, this should result in a full analysis of cost and efficiency savings and the business model simply injecting more capital may not solve the issues but prolong them and smooth the cracks which will inevitably reopen once the capital is further absorbed as the route of the cause is not fixed or identified.
In support of G. Smerths comments outside of the 5 bedroom house, Land Rover etc which was entertaining to read….the sentiment of his comments are true “Tough times don’t last, tough people do” & “If you can’t change the people, change the people”.